Friday Bullets

Stuff to read, watch, and ponder as the weekend approaches.

> The American Enterprise Institute’s American magazine usually looks at the world through AEI’s predictable “free markets, free people” glasses. But it also publishes a lot of thought-provoking stuff. Like  this piece, a reminder that businesses often have a hard time shifting gears when they need to.

> The coffee’s not the only reason McDonald’s has been so hot and strong.

> Like Mickey D’s, General Mills and Wal-Mart have been strong performers despite these alarming economic times. It’s not coincidental that all have big overseas presences. U.S. exporters are making big sales overseas, too. One factor.

> Why Chester the Cheetah went over to the dark side.

> My last Polaroid post, if we’re lucky. Is that Barry Manilow? I think it is!

Fears for Sears

The often-brutal department-store business may be poised to claim another victim.

Like most big companies, Sears has had its ups and downs over the years. Sometimes it seems that Sears has been such a steady performer through most of its history, with its quietly famous brands—Kenmore, Craftsman, DieHard—that its management appears to have gotten bored with it from time to time.

In the ’70s and ’80s, it decided to get into the sexier and more lucrative financial services businesses. Coldwell Banker, Dean Witter, and the Discover card all entered the Sears stable. It soon became clear that this strategy was causing a lack of focus, and the financial businesses were shed. In the 1990s, under chairman and CEO Arthur Martinez, Sears’ fortunes improved.

In November 2004, fabulously successful financier Edward Lampert, who had revived the bankrupt Kmart chain, purchased Sears through the Kmart Holdings entity. It was an $11 billion merger—Kmart Holdings became Sears Holdings. Lampert’s investment firm owns close to 50 percent.

So why is Sears reeling? It appears to be something of a recap of the ’70s and ’80s: an emphasis on financial stuff over nuts-and-bolts retailing.

Last year, a Washington Post article described Sears Holdings as a hedge fund that uses the cash flow from its retail stores (and the real estate that sits under them) as capital.

For investors, this strategy worked pretty well, particularly early last year, when the company’s stock (Nasdaq: SHLD) was trading at close to $200 a share. But for shoppers? Confusion for some, irritation for others. In any case, Sears isn’t investing much money to keep the stores fresh.

True, Sears Holdings is still profitable. At the opening bell on March 10, its stock price was $93.49, and its EPS was $5.29. But for how long? As many commentators have noted, Lampert simply isn’t a retail guy, and he’s a micromanager to boot. It’s not just sales that are declining—the real estate market that provided such a firm foundation for Lampert’s strategy also is crumbling.

Stores that have been eating Sears’ lunch, dinner, breakfast, and in-between snacks—Target, Wal-Mart, J. C. Penney, Home Depot, etc., etc.—will survive the current economic slump. But what of Sears and Kmart?

My predictions are almost always wrong. But I’d say Kmart will disappear—it doesn’t really have a brand identity of its own anymore—and Sears will live on in some form. There’s so much brand equity there. And it’s being wasted. Sears doesn’t have to die, though it will have to make some changes.

What it really needs is some of the creativity shown by a Target or Penney’s, and leaders who find the "boring" business of midrange retail fun and fascinating.

Fading Image

Mark Roberts and Denise Rouleau are Minneapolis artists who are losing one of the favorite media: Polaroid instant photography film.

Earlier this month, Polaroid Corporation—which is owned by Minnesota-based Petters Group Worldwide announced that it would be discontinuing production of the instant film. Instead, the Massachusetts-headquartered company, which was reorganized after going bankrupt in 2001, will focus on digital photography equipment and flat-panel televisions.

For people who’ve grown up largely in the digital age, Polaroid film is perhaps all but forgotten. They may never even know it exists.

But we elderly types know Polaroid as one of the great American innovators of the mid-20th century. The name refers to founder Edwin Land’s original invention of polarizing filters.

But it’s the instant camera, which Land and Polaroid began to selling in the late 1940s, for which the company is most famous. Instead of sending your film to a developer, the film developed itself.
In the 1960s, Polaroid developed “pack film,” consisting of individual sheets that the camera “spat out” after each shot. Peel off the top “positive” layer, and the image would slowly and magically reveal itself.

As an art medium, Polaroid instant film came into its own in the 1970s, when the SX-70 camera, a fold-flat camera that ejected the color sheet and didn’t require any peeling—maybe just some flapping by the photographer (though that’s probably as necessary as a cigarette smoker smacking his newly purchased pack)—as the sheet came out of the camera and slowly and amazingly revealed its truths. The remarkable, distinctive color that Polaroid instant film renders has long been a huge part of its aesthetic appeal. 

You can see Mark and Denise’s Polaroid-based photography art on the walls of the fabulous La Belle Vie restaurant across Hennepin Avenue from the Walker Art Center, as well as the duo’s Web site. They particularly like to take a Polaroid photograph and blow it up to a 4-by-4-foot format, manipulating it via computer or other methods. (The film’s emulsion stays fairly soft for several days after a shoot, which allows people to smear it around it in various ways.)

Mark, who has been working with Polaroid film since the late ’70s, got his first whack a year ago, when Polaroid discontinued SX-70 film. He’s got thousands of dollars worth of Polaroid equipment. “I might as well tie it together and use it as an anchor,” he says sadly, adding that he’s gotten innumerable e-mails from artists and other Polaroid film fans sharing their stories and sorrows. Meanwhile, he, Denise, and thousands of others are scouring stores and the Internet in search of precious last packages of their beloved media.

It’s not just artists who love Polaroid film. According to an Associated Press article, scientists, architects, and physicians all have found Polaroid film useful in their work.

Many hope that some other company will produce Polaroid film under license. One rumored possibility is Fujifilm, which makes its own brands of instant film, though they’re not compatible with Polaroid equipment.

An e-mail to Polaroid’s media department got this response: “Polaroid is looking into alternative options that would allow certain film types to be manufactured and will be sure to notify customers should this become a reality.”

Mark and Denise, not to mention numerous artists (and other interested parties) worldwide, look forward to that notification. 

Me, I’m in mourning for another great brand of my youth. It was probably inevitable, given the rise of digital photography. But still.

UPDATE: I got word today (2/26) that ABC News is soliciting Polaroid images for a possible story by anchor Charles Gibson.

Ebb and Grow

Not so long ago, many believed that Starbucks—along with its number two, Caribou Coffee—would pretty much take over the world, crushing independent coffee houses in their wake and drenching a world athirst for ever more caffeine. They looked unstoppable.

Meanwhile, McDonald’s appeared to be on the way down, thanks to overbuilding, growing health concerns (fueled by books like Fast Food Nation and movies like Supersize Me), and consumer boredom.

So much for predictions.

You may have read that both Starbucks and Caribou are reporting sluggish sales; some Bucks may close, though Caribou reported Thursday that it will open more stores this year. Meanwhile, though it had a flat December, McDonald’s is enjoying global same-store sales rising, including in the U.S. Its breakfast and dollar menus are doing particularly well. It’s now taking on the Buck and the ‘Bou for coffee business; Starbucks, meanwhile, is pulling the toaster plug on its breakfast noshes.

I don’t know about you, but I find this stuff fascinating: How youthful high-flyers can fall, and how old, “tired” businesses can reinvent and reposition themselves. (I should add that I’m not at all gloaty about the difficulties that the local team, Caribou, is suffering.) Not all oldsters actually do that, of course; and some need help in their continued growth by a strategic acquisition. Locally, General Mills is a good example—its purchase of some of Pillsbury’s businesses a few years back slowed the company down a bit, but now it appears to have all its rockets firing. Even its “mature” cereal business is growing, particularly overseas.

Maybe this satisfaction of seeing old companies re-fire has something to do with turning 50.

Speaking of: I’m old enough to remember the so-called Nifty 50. Back in the late 1960s, these were the stocks to own, the most ultramarine of blue chips, the kind of companies the skinny-tied, martini-swilling, Tareyton-puffing Madison Avenue fellas of Mad Men would sell their mothers to pitch.

A great many are, indeed, still around and doing well: General Electric, Anheuser-Busch, 3M, Procter & Gamble, and yes, McDonald’s. Many have disappeared: Chesebrough-Ponds, Jos. Schlitz Brewing, Digital Equipment, Heublein. Some are rather mysterious, at least to me: International Flavors and Fragrances, Simplicity Patterns (both are still in business, though). Others have merged, like Squibb and Bristol-Myers; Gillette now belongs to P&G; Polaroid is now just a brand owned by Petters Group Worldwide, its once-famous instant cameras long gone. Hewlett-Packard, interestingly, was not on the list, though it has since absorbed much of Digital Equipment through its acquisition of Compaq. (Remember when that move supposedly put HP on life support, a few years ago?) Kodak still exists, but has had to reinvent itself in the digital age.

Though each of these companies provides distinctive stories of success and sometimes failure, reinvention is the main reason most of the survivors of the 50 still have the aura of niftiness clinging to them. They entered new markets (GE), shifted away from old products into new business areas (IBM), or, like McDonald’s, made nimble market changes.

Now I want to see where Starbucks and Caribou go from here.

Two Nations, European and American

Local IT CEO Igor Epshteyn, an émigré from Belarus who appears in an article I wrote for the December issue of TCB, summarizes the difference nicely:

“I think that if you just want to work for somebody and take two months of vacation and have a great lifestyle, Europe is probably a better place to be. It has a lot more social programs.” By contrast, the entrepreneurial Epshteyn adds, “If you want to achieve something, if you want to start a business, if you want to build something on your own, from what I know, I think [the U.S.] is the best place to be.”

Igor’s insight made me finally understand something fundamental about the USA in 2007: Our culture is dominated by two very different groups.

“Euro-Americans” are (not surprisingly) generally politically liberal, and generally suspicious of businesses (at least bigger ones). These are the people who referred to the “blue” states that voted for John Kerry in 2004 as the “United States of Canada,” and the “red” states as “Jesusland.” Canada, a kind of honorary European nation thanks primarily to its single-payer health care and civil unions, is free and cool; Jesusland is, of course, dominated by anti-secular prolifers who want to tell people what to do.

Euro-America’s more sober (if no less angry) representatives include New York Times columnist Paul Krugman, who calls for a new New Deal; and Yale economist Jacob Hacker, author of The Great Risk Shift, who argues that middle-class and poorer Americans are taking more financial burdens while richer ones are increasingly being relieved of them.

What Americans need, say Euro-Americans, are longer vacations. Paid vacations. 

“Anglo-Americans” emphasize personal responsibility and entrepreneurs. Work and business are more powerful engines than leisure for driving the good life. There is no problem so large that “the market” can’t handle it—as long as taxes and regulations are small enough to let the market do its thing. Euro-Americans want to tell people, particularly businesspeople, what to do. With disastrous results, morally and economically.

In the post–Soviet Union world, the most evil nation on earth is now France, with its long vacations and 35-hour workweek and snotty superciliousness towards all things American, even though we pulled their sniveling bacon out of the frying pan at least twice. (With the election of Nicolas Sarkosy, Iran may be the new France.)

Before he died, my Anglo-American father, who had Yousef Karsh’s famous photo of Churchill standing guard beside his leather chair, was reading a book called Our Oldest Enemy. One guess who that enemy is.

So there it is. Some of us want us to be Europeans (social democracy and better food!); the rest of us would rather die than live on in such an initiative-sapping continent (though visiting is fine, once the dollar strengthens).

And at least for now, it’s probably useless to assert that both sides have their good points. Even though it’s true.